SuperDrive Investments (RF) Limited

SuperDrive Investments (RF) Limited(Registration Number 2011/000895/06)

Annual Financial Statements

for the year ended 31 December 2018

In terms of S29(1)(e)(ii) of the Companies Act 71 of 2008 as amended, we confirm that the following financial statementswere prepared by Louette Nel CA(SA) at Maitland Outsourced Securitisation Services Proprietary Limited, the

Administrator.

The following financial statements have been audited in compliance with S30 of the Companies Act 71 of 2008 asamended.

Directors' responsiblity statement 2

Directors' report 3 - 4

Corporate governance statement 5

Audit committee report 6 - 7

Independent auditor's report 8 - 12

Statement of financial position 13

Statement of comprehensive income 14

Statement of changes in equity 15

Statement of cash flows 16

Accounting policies 17 - 25

Notes to the annual financial statements 26 - 45


Annual financial statements for the year ended 31 December 2018

Contents

1

Directors' report (continued)

Dividend

On 21 November 2018, a preference dividend of R50 000 000 was paid to BMW Financial Services (South Africa)Proprietary Limited, the company’s sole preference shareholder.

Social and Ethics

The social and ethics committee was established as of 1 January 2017, with AM Koser, R Thanthony and BJ Korb asmembers.

Service providers

Administrator:

Maitland Outsourced Securitisation Services Proprietary Limited

Auditor:

KPMG Inc.

Servicer:

BMW Financial Services (South Africa) Proprietary Limited

Going Concern

The company recorded a profit of R63 837 (2017: R50 103) for the year ended 31 December 2018. As at31 December 2018 the company had a net asset position of R113 377 (2017: R113 762).

As a result of the above, the directors believe that the company is liquid and solvent and would be able to settle it'scurrent liabilties as they become due. Hence, the company has adequate resources to continue as a going concernfor the forseeable future. The company therefore continues to adopt the going concern basis in preparing thefinancial statements.

Subsequent events

The directors are not aware of any matter or circumstance arising since the end of the financial year to the date ofthis report that could have a material effect on the financial position of the company.

Business Address Postal Address

3rd floor, 200 on Main Postnet suite 294

Cnr Main and Bowwood Roads Private Bag X1005

Claremont Claremont

Cape Town Cape Town

7708 7735



4

The company is fully committed to the principles of the Code of Corporate Practices and Conduct ('the Code") as setout in the King IV Report on Corporate Governance. In supporting the Code, the directors recognise the need togovern the company with integrity and in accordance with generally accepted corporate practices.

For the period under review the board indicated that it was satisfied with the way in which the company applied therecommendations of King IV, or put alternative measures in place where necessary.

King IV principles have been applied on this entity. A detailed application register is available on the followingwebsite: http://www.bmwfinance.co.za.



Corporate governance statement

5

Audit committee report

We are pleased to present our report for the financial year ended 31 December 2018.

The audit committee is an independent statutory committee appointed by the shareholder. Further duties aredelegated to the audit committee by the board of directors of the company. This report includes both these sets ofduties and responsibilities.

Members of the audit committee

R Thanthony (Chairperson)

WH Swanepoel

BJ Korb

The committee is satisfied that the members thereof have the required knowledge and experience as set out inSection 94(5) of the Companies Act 71 of 2008 as amended and Regulation 42 of the Companies Regulation, 2011.

Meetings held by the Audit Committee

The audit committee performs the duties laid upon it by Section 94(7) of the Companies Act 71 of 2008 as amendedby holding meetings with the key role players on a regular basis and by the unrestricted access granted to theexternal auditor.

The audit committee held meetings 6 April 2018, 10 April 2018, 11 April 2018, 24 April 2018 and 10 December 2018during which it reviewed its audit committee charter and fulfilled its responsibilities in terms thereof.

Expertise and experience of finance function

The servicing of the company’s assets is performed by BMW Financial Services (South Africa) Proprietary Limited,whilst the accounting records are prepared by Maitland Outsourced Securitisation Services Proprietary Limited(“Administrator”) (jointly hereinafter “Management”). The Servicer’s internal audit function does not directly report tothe audit committee, but highlights any matters relevant to the company’s annual financial statements via theServicer who reports to the Board.

The on-going secretarial administration of the company’s statutory records is done by TMF Corporate Services(South Africa) Proprietary Limited, a specialist trust company that provides independent directors and trustees.

Independance of external auditor

The committee satisfied itself through enquiry that the external auditor is independent as defined by the CompaniesAct 71 of 2008 as amended and as per the standards stipulated by the auditing profession. Requisite assurance wassought and provided in terms of the Companies Act 71 of 2008 as amended that internal governance processeswithin the firm support and demonstrate the claim to independence.

The company’s auditor is KPMG Inc.

The audit committee, after consultation with the Servicer and Administrator, agreed to the terms of the externalauditor’s engagement. The audit fee for the external audit has been considered and approved taking intoconsideration such factors as parallel interaction with the Servicer, timing of the audit, the extent of the work requiredand the scope.

Fees paid to the auditor are disclosed in note 16 in the financial statements.



6

ASSETS

Deferred tax asset 2 11,818 8,165

Current tax asset 3 6,959 17,292

Derivative financial asset 4 49,878 16,652

BMW Financial Services receivable (Auto Loans) 5 5,927,028 6,137,046

Trade and other receivables 6 9,092 7,873

Cash and cash equivalents 7 610,026 426,781

Total assets 6,614,801 6,613,809

EQUITY AND LIABILITIES

Capital and reserves 113,377 113,762

Share capital 8 - -

Retained income 113,377 113,762

Liabilities 6,501,424 6,500,047

Subordinated loans 9 1,473,090 1,473,186

Debt securities 10 5,020,278 5,020,593

Trade and other payables 11 8,056 6,268

Total equity and liabilities 6,614,801 6,613,809



Statement of financial positionat 31 December 2018

Notes 2018 2017

R'000 R'000

13

Interest income using effective interest rate 12.1 684,521 650,263

Other interest income 12.2 22,374 15,228

Interest expense 13 (588,544) (528,151)

Net interest income 118,351 137,340

Other income 14 43,443 31,960

Fair value changes of derivative instruments 4 33,517 9,081

Total income 195,311 178,381

Impairment charges 15 (67,756) (76,178)

Other expenses 16 (39,338) (31,792)

Profit before taxation 88,217 70,411

Taxation 17 (24,380) (20,308)

Total comprehensive income for the year 63,837 50,103


Annual Financial Statements for the year ended 31 December 2018

Statement of comprehensive incomeNotes 2018 2017

R'000 R'000

14

Balance at 1 January 2017 - 143,659 143,659

Total comprehensive income for the year - 50,103 50,103

Dividend paid on redeemable preference share - (80,000) (80,000)

Balance at 31 December 2017 - 113,762 113,762

Adjustment to opening retained income for IFRS 9 1.1.2.2 - (14,222) (14,222)

Total comprehensive income for the year - 63,837 63,837

Dividend paid on redeemable preference share - (50,000) (50,000)

Balance at 31 December 2018 - 113,377 113,377

* Due to the financial statement being disclosed in R'000, the share capital of R100.01 does not reflect above.Please refer to note 8.



Statement of changes in equity

Note Share CapitalRetained

income Total

R'000 R'000 R'000

15

Cash flows from operating activities

Cash utilised in operations 18 (6,235) (6,829)

Interest received 18.1 704,453 665,505

Interest paid 18.2 (588,955) (517,303)

SARS interest received 14 4,277 -

Taxation paid 3 (12,169) (22,789)

Net cash inflow from operating activities 101,371 118,584

Cash flows generated from / (utilised in) investing activities

1.

Settlement / buybacks of income earning assets 2,740,757 2,439,619

Acquistion / top-up of income earning assets 5 (2,608,883) (3,814,455)

Net cash inflow / (outflow) from investing activities 131,874 (1,374,836)

Cash flows utilised in financing activities

2.

Settlement from redemption of debt securities - (1,111,000)

Proceeds from debt securities issued - 2,013,000

Increase of subordinated loan 9 - 261,871

Dividend paid on redeemable preference share (50,000) (80,000)

Net cash (outflow) / inflow from financing activities (50,000) 1,083,871

Net increase / (decrease) in cash and cash equivalents 183,245 (172,381)

Cash and cash equivalents at beginning of the year 426,781 599,162

Cash and cash equivalents at end of the year 7 610,026 426,781

- -



Statement of cash flowsNotes 2018 2017

R'000 R'000

16

1. Accounting policies

The company is domiciled in South Africa. All accounting policies applied are consistent with those applied inprevious years, except for the adoption of IFRS 9 and IFRS 15, and are in compliance with the framework conceptsand the measurement and recognition requirements of International Financial Reporting Standards and the SAICAFinancial Reporting Guides as issued by the Accounting Practices Committee and Financial Pronouncements asissued by the Financial Reporting Standards Council and the requirements of the Companies Act in South Africa.

These accounting policies represent a summary of the significant accounting policy elections of SuperDriveInvestments (RF) Limited.

The financial statements set out on pages 13 to 45 which have been prepared on the going concern basis, wereapproved by the board of directors.

1.1 Basis of preparation

The financial statements at 31 December 2018 are prepared in accordance with the going concern principle and arepresented in South African Rands (the company’s functional currency) on the historical cost basis, except for thederivative financial instruments, which are stated at fair value. The accounting policies are consistent with thoseapplied in the previous years, except for the adoption of IFRS 9 and IFRS 15.

Rounding policy

All amounts are presented in Rand thousand (R’000). The company has a policy of rounding in increments of R500.Amounts less than R500 will therefore round down to R nil and are presented as a dash.

1.1.1 Judgements and estimates

The preparation of financial statements in conformity with International Financial Reporting Standards requiresmanagement to make judgements, estimates and assumptions that may affect the application of policies andreported amounts of assets, liabilities, income and expenses. Estimates, assumptions and judgements arecontinually evaluated and are based on historical experience and other factors, including expectations of futureevents that are believed to be reasonable under the circumstances. Unless stated otherwise the judgements appliedby management in applying the accounting policies are consistent with the prior year except for the application ofnew IFRS 9 standard. Included below are all the critical accounting estimates, assumptions and judgements madeby the company, except those related to fair value measurement which are included in note 21.

Revisions to accounting estimates are recognised in the period in which the estimate is revised, if the revision onlyaffects that period, or in the period of the revision and future periods if the revision affects both current and futureperiods.

Information about critical judgments in applying accounting policies that have the most significant effect on theamounts recognised in the financial statements is included in the following notes:

• Note 1.2.2.3 - Impairment of financial assets

• Note 1.4 - Taxation



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1. Accounting policies (continued)

1.1.2 Change in accounting policies

The company has adopted IFRS 15 and IFRS 9 from 1 January 2018.

1.1.2.1 IFRS 15

IFRS 15 replaces all existing revenue requirements in IFRS and applies to all revenue arising from contracts withclients, unless the contracts are in the scope of the standards on leases, insurance contracts and financialinstruments. The standard is effective and implemented by the group from 1 January 2018.

The core principle of the standard is that revenue recognised reflects the consideration to which the companyexpects to be entitled in exchange for the transfer of promised goods or services to the client. The standardincorporates a five-step analysis to determine the amount and timing of revenue recognition. The company hasperformed an assessment to determine the impact of the new standard on the statement of financial position andperformance, which resulted in no changes to the accounting treatment of revenue.

Revenue

The company assesses the contract and determines whether the fees identified in the contract are in the scope ofIFRS 15. If so, the revenue will be recognised only when the company can:

• identify the contract;

• identify the performance obligation;

• determine the transaction price; and

• recognise the revenue as and when the performance obligation is satisfied.

The company is able to identify the contract when both the client and the group have accepted the terms of theagreement. The contract will also identify all the services (performance obligations) the company will render to theclient. Based on this, the transaction price is allocated to each identified performance obligation. The companyrecognises the revenue once the performance obligation is satisfied, which may occur over time or at a point in time.

Refer to accounting policy note 1.5 and 1.6 for detailed accounting policies for all revenue categories.

1.1.2.2 IFRS 9

The new requirements contained in IFRS 9 (Financial Instruments) relating to the classification and measurement offinancial instruments were applied retrospectively by the company in the financial year 2018. The availableexemption not to adjust comparative information for previous periods was applied. Accordingly, only the openingretained earnings and statement of financial position at 1 January 2018 were adjusted. Information on accounting inaccordance with IFRS 9 is provided in note 1.2 in the accounting policies as well as note 20.1.

Prior to the adoption of IFRS 9, financial instruments were accounted for in accordance with IAS 39. In accordancewith those requirements, the company’s financial assets were allocated to either cash or to the categories “loansand receivables at amortised cost" or “held for trading”. Financial liabilities were allocated to the categories “loansand borrowings at amortised cost" or "held for trading". On initial recognition, financial instruments accounted for inaccordance with IAS 39 were measured at fair value, whereby transaction costs were taken into account except inthe case of financial instruments allocated to the category “held for trading”. Subsequent to initial recognition, held-for-trading financial instruments and financial assets for which the fair value option was applied were measured attheir fair value. Financial assets that were classified as "loans and receivables at amortised cost" and financialliabilities that were classified as "loans and borrowings at amortised cost" were subsequently measured at amortisedcost using the effective interest method. The IAS 39 impairment model was based on a regular determination ofwhether objective evidence indicated that impairment had already occurred. For the purposes of assessing possibleimpairment, all available information, such as market conditions and prices as well as the length of time and thescale of the decline in value were taken into account.



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1.1.2 Change in accounting policies (continued)

1.1.2.2 IFRS 9 (continued)

a) Derivative financial asset was reclassified from "held for trading" to the category “at fair value through profit orloss”. There was no difference between carrying amounts pursuant to IAS 39 and IFRS 9 as at 1 January 2018.

b) Adjustment of impairment allowances in accordance with the new requirements of IFRS 9. The following tableshows the adjustments made to impairment allowances in the company statement of financial position as a result ofthe first-time application of IFRS 9.

Impairmentallowance

Adjustmentto

impairmentallowance(IFRS 9)

Impairmentallowance

31-Dec-17 1-Jan-18 1-Jan-18

BMW Financial Services receivable (Auto Loans) 171,896 19,754 191,650



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1.1.2 Change in accounting policies (continued)

1.1.2.3 IFRS 7 (Financial Instruments: Disclosures)

For notes disclosures the consequential amendments to IFRS 7: Financial Instruments: Disclosures have also beenapplied only to the current period. Notes disclosures for the comparative period repeat those disclosures made in theprevious year.

1.2 Financial instruments

1.2.1 Recognition and de-recognition

Financial instruments are recognised when the company becomes a party to the contractual provisions of theinstrument. Financial assets are derecognised if the company’s contractual rights to the cash flows from the financialassets expire or if the company transfers the financial asset to another party without retaining control or substantiallyall risk and rewards of the asset. Purchases and sales of financial assets are accounted for at trade date, i.e. thedate that the company commits itself to purchase or sell the asset. Financial liabilities are derecognised if thecompany’s obligations specified in the contract expire or are discharged or cancelled.

1.2.2 Financial assets

1.2.2.1 Classification

From 1 January 2018 the company applies IFRS 9 and classifies its financial assets in the following measurementcategories:

• At fair value through profit or lost ("FVTPL") and

• At amortised cost.

The classification of financial assets depends on:

• the business model within which the financial assets are held and managed; and

• the contractual cashflow characteristics of the financial assets, i.e. whether the cashflowsrepresent ‘solely payments of principal and interest’.

Business model assessment

The company makes an assessment of the objective of the business model in which an asset is held at portfolio levelbecause this best reflects the way the business is managed and information is provided to management.

The company financial assets includes BMW Financial Services receivable, derivative financial assets, trade andother receivable and cash and cash equivalents.

Depending on the business model and the structure of contractual cash flows, financial assets are classified asfollows:

• At amortised cost

The three instruments classified as "at amortised cost" are: BMW Financial Services receivable(Auto Loans), Trade and other receivables as well as Cash and cash equivalents.

• At fair value through profit or loss

All other financial assets are classified at FVTPL.



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1.2 Financial instruments (continued)

1.2.2 Financial assets (continued)

1.2.2.2 Measurement (Financial assets)

Financial assets are initially measured at their fair value plus, in case of financial assets not at fair value throughprofit and loss, transaction costs that are directly attributable to the acquisition or issue of financial instruments.

Subsequent to initial recognition, financial assets which are classified as 'at amortised cost’ are measured atamortised cost. The 'amortised cost' is the amount at which financial assets are measured on initial recognitionminus the principal repayments, plus or minus the cumulative amortisation using the effective interest method of anydifference between that initial amount and the maturity amount and, for financial assets, adjusted for any expectedcredit loss allowance (or impairment allowed before 1 January 2018).

Subsequent to initial recognition, financial assets which are classified as 'at FVTPL' are measured at fair value.

Cash and cash equivalents

Cash and cash equivalents comprise cash balances and call deposits with maturities of three months or less fromthe acquisition date that are subject to an insignificant risk of changes in their fair value, and are used by thecompany in the management of its short-term liabilities. Cash and cash equivalents are stated at amortised cost,which approximates fair value.

Trade and other receivables

Trade and other receivables are stated at amortised cost.

BMW Financial Services receivables (Auto Loans)

BMW Financial Services receivables (Auto Loans) are measured at amortised cost using the effective interest ratemethod.

Derivative financial assets

Derivative financial assets are used within the company for economic hedging purposes in order to reduce interestrate risk, arising from operating activities and the related financing requirements.

All derivative financial assets are measured at their fair value. The fair values of derivative financial instruments aredetermined using measurement models, as a consequence of which there is a risk that the amounts calculated coulddiffer from realisable market prices on disposal. Observable financial market price spreads are taken into account inthe measurement of derivative financial instruments. The supply of data to the model used to calculate fair valuesalso takes into account tenor and currency basis spreads. In addition, the company’s own default risk and that ofcounterparties is taken into account on the basis of credit default swap values for market contracts with matchingterms.

The company applies the option of measuring the credit risk for a group of financial assets and financial liabilities onthe basis of its net exposure. Portfolio-based value adjustments to the individual financial assets and financialliabilities are allocated using the relative fair value approach (net method).



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1.2 Financial instruments (continued)

1.2.2 Financial assets (continued)

1.2.2.3 Impairment of financial assets (Policy applicable from 1 January 2018)

The company applies the general approach described in IFRS 9 to determine impairment of financial assets. Underthe general approach, loss allowances are measured on initial recognition on the basis of the expected 12-monthcredit loss (stage 1). If the credit loss risk at the end of the reporting period has increased significantly since initialrecognition, the impairment allowance is measured on the basis of lifetime expected credit losses (stage 2 – generalapproach).

In the case of credit-impaired assets which had not been credit-impaired at the time they were acquired or originated,an impairment allowance is recognised at an amount equal to lifetime expected credit losses (stage 3).

As a general rule, the company assumes that a receivable is in default if it is more than 90 days overdue or if thereare objective indications of insolvency. Credit-impaired assets are identified as such on the basis of this definition ofdefault. In the case of stage 3 assets, interest income is calculated on the asset’s carrying amount less anyimpairment loss.

Loss allowances on receivables are determined primarily on the basis of past experience with credit losses, currentdata on overdue receivables, rating classes and scoring information. Forward-looking information (for instanceforecasts of key performance indicators) is also taken into account if, based on past experience, such indicatorsshow a substantive correlation to actual credit losses.


The company applies the simplified approach described in IFRS 9, whereby the amount of the loss allowance ismeasured subsequent to the initial recognition of the receivable on the basis of lifetime expected credit losses (stage2 - simplified approach).

1.2.2.4 Impairment of financial assets (Policy applicable before 1 January 2018)

A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determinewhether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objectiveevidence indicates that one or more events have had a negative effect on the estimated future cash flows of thatasset. The criteria, which is used to determine if there is objective evidence, includes an analysis of the historicalperformance of the portfolio and a review of the delinquency statistics.

Any impairment loss in respect of a financial asset measured at amortised cost is calculated as the differencebetween its carrying amount, and the present value of the estimated future cash flows discounted at the originaleffective interest rate. Impairment losses are recognised in profit or loss.

Significant financial assets are tested for impairment on an individual basis. The remaining financial assets areassessed collectively in companies that share similar credit risk characteristics.



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1.2.3 Financial liabilities

1.2.3.1 Classification

Management determines the classification of financial liabilities at initial recognition. The company classified itsfinancial liabilities in two categories:

• At amortised cost

The instruments classified as "at amortised cost" are: Debt securities, Subordinated loans andTrade and other payables

• At fair value through profit or loss

All other financial liabilities are classified as at FVTPL

1.2.3.2 Measurement

Financial liabilities at amortised cost are initially measured at fair value including transaction costs, and subsequentlyat amortised cost using the effective interest method.

Derivatives are measured at fair value through profit or loss.

1.2.4 Offsetting financial instruments

Financial assets and financial liabilities are off-set and the net amount reported in the statement of financial positionwhen the company has a legally enforceable right to set off the recognised amounts, and intends either to settle on anet basis, or to realise the asset and settle the liability simultaneously.

1.2.5 Write off

The company writes off financial assets when it has no reasonable expectation of recovering the amountsconcerned. This may be the case, for instance, if the debtor is deemed not to have sufficient assets or other sourcesof income to service the debt.

1.3 Provisions

Provisions are recognised when the company has a present legal or constructive obligation as a result of pastevents, for which it is probable that an outflow of economic benefits will occur, and where a reliable estimate can bemade of the amount of the obligation.

1.4 Taxation

The calculation of the company's taxation charge and provision for income taxes necessarily involves a degree ofestimation and judgement. There are transactions and taxation computations for which the ultimate taxationtreatment or result is uncertain, or in respect of which the relevant taxation authorities may or could indicatedisagreement with the company’s treatment and accordingly the final taxation charge cannot be determined untilresolution has been reached with the relevant taxation authority.

Income tax expense includes current and deferred tax. Income tax expense is recognised in profit and loss, except tothe extent that it relates to items recognised directly in other comprehensive income or equity, in which case it isrecognised in other comprehensive income or equity.

The company recognises liabilities for anticipated taxation audit issues based on estimates of whether additionaltaxes will be due after taking into account external advice where appropriate. Where the final taxation outcome ofthese matters is different from the amounts that were initially recorded, such differences will impact the current anddeferred taxation assets and liabilities in the reporting period in which such determination is made.



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1.4 Taxation (continued)

Deferred tax is provided for temporary differences between the carrying amounts of the assets and liabilities forfinancial reporting purposes and the amounts used for taxation purposes.

The amount of deferred tax provided, is based on the expected manner of realisation or settlement of the carryingamount of the assets and liabilities, using tax rates enacted or substantially enacted at the reporting date.

A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences to theextent that it is probable that future taxable profits will be available against which the associated unused tax lossesand deductible temporary differences can be utilised. Deferred taxation assets are reduced to the extent that it is nolonger probable that the related tax benefit will be realised.

Management assesses the extent to which it is probable that taxable profit will be available against which deductibletemporary differences can be utilised. The company has a deferred taxation asset balance and is currently tradingand expected to make profits which will enable them to recover the deferred taxation asset.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities andassets, and they relate to taxes levied by the same tax authority on the same taxable entity, or on different taxentities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities willbe realised simultaneously.

Tax expense (income)

Current and deferred tax is recognised as income or an expense and included in profit or loss for the period, exceptto the extent that the tax arises from:

• a transaction or event which is recognised, in the same or a different period, outside profit orloss, either in other comprehensive income or directly in equity.

• a business combination other than the acquisition by an investment of a subsidiary that isrequired to be measured at fair value through profit or loss.

Current tax and deferred tax is recognised outside profit or loss if the tax relates to items that are recognised, in thesame or a different period, outside profit or loss. Therefore, current tax and deferred tax that relates to items that arerecognised, in the same or a different period:

• in other comprehensive income, will recognised in other comprehensive income.

• directly in equity, will recognised directly in equity.

1.5 Net interest income

Interest is recognised at the effective yield method rates of interest per contract. Interest income and expense arerecognised in profit or loss on an accrual basis using the effective interest method for all interest-bearing financialinstruments. In terms of the effective interest method, interest is recognised at a rate that exactly discounts estimatedfuture cash payments or receipts through the expected life of the financial instrument or, where appropriate, a shorterperiod, to the net carrying amount of the financial asset or financial liability.

Fee income that forms an integral part of the effective interest rate of a financial instrument is recognised as anadjustment to the effective interest rate and recorded in interest income in terms of IFRS 9.



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1.6 Other income

Other income mainly includes settlement revenue, administration fee income and SARS interest income. Thisincome is recognised as the related services are performed.

Administration fee income

The company earns fees from a range of services it provides to clients and these are accounted for as follows:

o Income earned on the execution of a significant performance obligation is recognised when thesignificant performance obligation has been performed.

o Income earned from the provision of services is recognised over time as the performanceobligation is fulfilled.

o Fees charged for servicing a loan are recognised in revenue as the performance obligation isprovided, which in most instances occurs monthly when the fees are levied.

1.7 Standards and interpretations not yet effective

The following standards and interpretations have been issued but are not yet effective and management is in theprocess of assessing the impact of these standards:

IFRS 16: Leases

Effective date: For financial years beginning on or after 1 January 2019.

Description of change

New standard introducing a single lessee accounting model and requires a lessee to recognise assets and liabilitiesfor all leases with a term of more than 12 months, unless the underlying asset is of low value.

Description of impact

We have assessed the impact of IFRS 16 on the company, however this standard is not applicable to the companybecause there are no leases.

IFRS 17: Insurance contracts

IFRS 17 supersedes IFRS 4: Insurance Contracts and aims to increase comparability and transparency aboutprofitability.

This standard is not applicable to the company.

IFRIC 23: Uncertainty over Income Tax Treatments

Effective date: For financial years beginning on or after 1 January 2019.

The interpretation specifies how an entity should reflect the effects of uncertainties in accounting for income taxes.

The company does not expect that the adoption of this interpretation note will have a material impact on the financialstatements of the company in future periods, since the only uncertainties in accounting that impact the income taxesof the company relates to provision for doubtful debt. However, this is not considered to be significant.



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2018 2017

R '000 R '000

2. Deferred tax . . . .

The following are the major deferred tax assets recognised by the company and movements thereon, during thecurrent reporting period. 0

Deferred tax analysis

Allowance for credit losses 19,565 12,629

Income not recognised for accounting purposes 6,035 -

Derivative financial asset (13,857) (4,473)

Provisions 75 9

11,818 8,165

Deferred tax reconciliation

Deferred tax asset at beginning of the year 8,165 4,449

Fair value changes of derivative instruments (9,384) (2,542)

Allowance for credit losses 1,405 6,258

Income not recognised for accounting purposes 6,035 -

Provisions 66 -

Adoption of IFRS 9 (adjustment to retained earnings) 5,531 -

Deferred tax asset at end of the year 11,818 8,165

3. Current tax asset . . . .

Balance at the beginning of the year 17,292 18,527

Payment to SARS 12,169 22,789

Current taxation (22,502) (24,024)

Balance owing by SARS at year end 6,959 17,292

4. Derivative financial asset . . . .

At fair value through profit and loss

Interest rate swap

Balance at beginning of the year 16,652 7,249

Fair value changes of interest rate swap 33,517 9,081

Interest accrued throughout the period (22,665) (14,906)

Interest received throughout the period 22,374 15,228

Balance at the end of the year 49,878 16,652

An interest rate swap agreement has been entered into between The Standard Bank of South Africa Limited andSuperDrive Investments (RF) Limited. This is to hedge the quarterly interest rate risk that may occur due toSuperDrive Investments (RF) Limited receiving prime linked interest from borrowers, yet paying JIBAR linkedinterest on all the classes of asset backed securities. This derivative is classified as at fair value through profit andloss and hedge accounting is not applied.



Notes to the annual financial statements

26

2018 2017

R '000 R '000

5. BMW Financial Services receivable (Auto Loans) .

BMW Financial Services (South Africa) Proprietary Limited (“BMW Financial Services”) legally sold a portion of autoloans to SuperDrive Investments (RF) Limited. However, since BMW Financial Services is also the provider of thesubordinated loan, the substance of the transaction was that the accounting derecognition criteria to transfer thesignificant risks and rewards of ownership, were not met.

Thus an intercompany receivable is recognised for the consideration paid for these assets to BMW FinancialServices. The cash flows arising from this asset are directly attributable to the auto loans and thus, the followingdisclosure is appropriate and useful to the users of these financial statements, as the carrying amount of thereceivable will fluctuate in line with the auto loan balances.

BMW Financial Services receivable (Auto Loans) 7,572,820 7,851,727

Unearned finance charges (1,378,163) (1,542,785)

Impairments (267,629) (171,896)

5,927,028 6,137,046

Reconciliation of movement in balance

Balance at beginning of the year 6,137,046 4,838,388

Adjustment to opening balance for IFRS 9 (19,754) -

Adjusted balance at the beginning of the year 6,117,292 4,838,388

Acquisitions 2,608,883 3,814,455

Top ups for the year 2,608,883 3,814,455

Settlements (2,694,980) (2,405,248)

Buybacks (36,411) (34,371)

Impairments (67,756) (76,178)

Impairment (raised) / reversed - Stage 3 (refer note 15) (50,877) 5,759

Impairment raised - Stage 1 & Stage 2 (refer note 15) (15,738) (30,277)

Write-offs - refer note 15 (1,141) (51,660)

At end of the year 5,927,028 6,137,046

The company has pledged BMW Financial Services receivable (Auto Loans) amounting to R5 911 559 414 (2017:R6 186 776 218) as collateral to the note holders. The associated liabilities of R 5 020 277 627 (2017: R5 020 593119) are disclosed in note 10.

These transactions are entered into under terms and conditions that are standard industry practice in securitisationfunding structures.




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2018 2017

R '000 R '000

6. Trade and other receivables

Prepayments 5 5

Interest accrued 2,836 394

VAT receivable 6,251 7,474

9,092 7,873

The carrying value of trade and other receivables approximates the fair value.

7. Cash and cash equivalents . . . .

Current bank account 2 2

Collections bank account 560,294 377,049

Permitted investments bank account 49,730 49,730

610,026 426,781

The permitted investments bank account includes the cash reserve of R49 730 000 (2017: R49 730 000), which isavailable for use in the event of a shortfall in available funds which is needed to meet the payment of specifieditems in terms of the priority of payments per the programme memorandum. The carrying value of cash and cashequivalents approximates fair value, since they are short term in nature.

8. Share capital . . . .

Authorised and issued share capital 1 1 1 1

Authorised

995 Ordinary shares of R1 par value each - -

500 Cumulative redeemable preference shares of R0.01 each - -

Issued and fully paid

100 Ordinary shares of R1 par value each - -

1 Cumulative redeemable preference shares of R0.01 each - -

The authorised share capital consists of 995 ordinary shares with a par value of R1 each. The share capital issued,consists of 100 ordinary shares with a par value of R1 per share. Due to the financial statements being disclosed inR’000, the share capital of R100 does not reflect above.

The authorised preference share capital consists of 500 cumulative redeemable preference shares with a par valueof R0.01 each. The preference share capital issued, consists of 1 preference share at a par value of R0.01 pershare. Due to the financial statements being disclosed in R’000, the preference share capital of R0.01 does notreflect above.

One cumulative redeemable preference share with a par value of R0.01 has been issued to BMW FinancialServices. Dividends are payable when declared by the directors, after consideration of the financial circumstancesof the Company, based on liquidity and solvency tests. The preference share is redeemable at the option of theholder, at any time after the date that the final debt securities are redeemed.




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2018 2017

R '000 R '000

9. Subordinated loans . . . .

Movement in subordinated loans

Balance at the beginning of the year 1,473,186 1,208,057

Increase of subordinated loan - 261,871

Repayment of accrued interest (17,322) (14,064)

Accrued unpaid interest 17,226 17,322

1,473,090 1,473,186

This loan was provided by BMW Financial Services and was subordinated to creditors in terms of a subordinatedloan agreement. Interest is calculated monthly in arrears on the principal amount owing at JIBAR + 3.5% and ispayable to BMW Financial Services, subject to the priority of payments. The loan is repayable as and when cash isavailable to make such payments in accordance with the priority of payments agreement.

No defaults of principal or interest payments have occurred during the year under review.

10. Debt securities . . . .

2018: Total Debt

Securities Accrued

Interest

R '000 R '000 R '000

Class A6 522,811 518,000 4,811

Class A7 301,820 299,000 2,820

Class A8 918,851 910,000 8,851

Class A9 639,004 633,000 6,004

Class A10 605,796 600,000 5,796

Class A11 1,003,286 994,000 9,286

Class A12 1,028,710 1,019,000 9,710

5,020,278 4,973,000 47,278




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10. Debt securities (continued)

2017: Total Debt

Securities Accrued

Interest

R '000 R '000 R '000

Class A6 522,844 518,000 4,844

Class A7 301,839 299,000 2,839

Class A8 918,908 910,000 8,908

Class A9 639,044 633,000 6,044

Class A10 605,834 600,000 5,834

Class A11 1,003,350 994,000 9,350

Class A12 1,028,774 1,019,000 9,774

5,020,593 4,973,000 47,593

Class ofsecurities

Interest rate Rate at yearend 2018

Rate at yearend 2017

Maturity Date

Class A6 1.45% above 3 month JIBAR 8.600% 8.608% 21-Aug-19







Interest rates on all notes are reset quarterly.

2018 2017

R '000 R '000

Movement in debt securities

Balance at the beginning of the year 5,020,593 4,071,000

Accrued interest paid (47,593) -

Accrued interest 47,278 47,593

Notes issued - 2,013,000

Notes redeemed - (1,111,000)

5,020,278 5,020,593

11. Trade and other payables . . . .

Accrual accounts payable 3,947 2,844

Sundry creditors 4,109 3,424

8,056 6,268

The carrying value of trade and other payables approximates the fair value.




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2018 2017

R '000 R '000

12. Interest income . . . .

12.1 Interest income using the effective interest rate

Interest income on financial assets at amortised cost:

Interest on BMW Financial Services receivable (Auto Loans) 654,930 616,231

Interest on call account 23,679 30,947

Interest on cash reserves 5,912 3,085

684,521 650,263

12.2 Other interest income

Interest income on financial assets at fair value through profit or loss:

Interest on swap 22,374 15,228

706,895 665,491

13. Interest Expense . . . .

Interest expense on financial liabilities at amortised cost:

Interest on subordinated loan 157,178 138,871

Interest on Class A4 notes - 38,107

Interest on Class A5 notes - 23,693

Interest on Class A6 notes 43,896 45,024







588,544 528,151

14. Other income . . . .

Retail settlement revenue 26,163 20,953

Retail administration fee 13,003 11,007

SARS interest received 4,277 -

43,443 31,960




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15. Impairment charges

2018:

Stage 1 Stage 2 Stage 3 Write-offs Total

R'000 R'000 R'000 R'000 R'000

Amount per IFRS 9 7,356 8,382 50,877 1,141 67,756

2017:

Non-performing

loans

Performingloans

Write-offs Total

R'000 R'000 R'000 R'000

Amount per IAS 39 (5,759) 30,277 51,660 76,178

2018 2017

R '000 R '000

16. Other expenses . . . .

Other expenses include the following: 1 1 1 1

Audit fees 211 300

Directors' fees 175 160

Liquidity facility commitment, backup servicer andadmin fees 4,233 2,203

Servicer fee 30,392 25,448

VAT apportionment expense (unclaimable VATinput) 4,327 3,681

39,338 31,792

17. Taxation . . . .

South African normal taxation:

- current year tax 22,502 24,024

- deferred tax (note 2) 1,878 (3,716)

24,380 20,308

Taxation rate reconciliation:

Taxation at standard rate 28.00% 28.00%

Permanent differences (SARS penalties and interest) 0.36% 0.84%

Effective tax rate per statement of comprehensive income 27.64% 28.84%




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2018 2017

R '000 R '000

18. Cash utilised in operations

Profit before taxation 88,217 70,411

Adjusted for non-cash items:

Fair value changes of derivative instruments (33,517) (9,081)

Impairment charges 67,756 76,178

Cash generated before working capital changes 122,456 137,508

Changes in working capital: (6,063) (6,997)

Decrease / (increase) in trade and other receivables 1,223 (7,279)

Increase in trade and other payables 1,788 604

Non-cash flow item related to impairment of legal debtors (9,365) -

Decrease / (increase) in derivative financial asset 291 (322)

Interest income (706,895) (665,491)

Interest expense 588,544 528,151

SARS Interest received (refer note 14) (4,277) -

Cash utilised in operations (6,235) (6,829)

18.1 Interest received

Interest income 706,895 665,491

Movement in interest accrual (2,442) 14

Interest accrued current year (2,836) (394)

Interest accrued prior year 394 408

Cashflow 704,453 665,505

18.2 Interest paid

Interest expense (588,544) (528,151)

Movement in interest accrual (411) 10,848

Interest accrued current year 64,503 64,914

Interest accrued prior year (64,914) (54,066)

Cashflow (588,955) (517,303)




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19. Related parties . . . .

A related party is a person or entity that is related to the entity that is preparing its financial statements. In theordinary course of business, the company enters into various transactions with related parties.

SuperDrive Investments Issuer Owner Trust owns the company’s ordinary shares. BMW Financial Services ownsthe company’s sole preference share. In terms of International Financial Reporting Standards (IFRS), the companyis consolidated into BMW Financial Services’ consolidated financial statements and BMW (South Africa) ProprietaryLimited’s consolidated financial statements.

19.1 Related party transaction with BMW Financial Services

Financing

Subordinated funding has been provided by BMW Financial Services. Interest expense on subordinated fundingamounted to R157 178 223 (2017: R138 870 839) for the year. Refer note 13.

The following transactions which took place between BMW Financial Services and SuperDrive Investments (RF)Limited, are at arms length, settled via a transfer of funds and unless stated otherwise in the relevant note, areunsecured and no guarantees have been given or received:

Purchase of additional auto loans

The company had normal top ups of R2 608 882 503 (2017: R3 814 454 758) for the year. Refer note 5.

Settlements

The company paid settlements of R2 694 981 451 (2017: R2 405 247 769) for the year. Refer note 5.

Buybacks

BMW Financial Services bought back assets to the value of R36 410 616 (2017: R34 371 073) for the year. Refernote 5.

Interest income

The company received interest income from BMW Financial Services to the value of R654 930 172(2017: R616 230 333) for the year. Refer note 12.

BMW Financial Services receivable (Auto Loans)

The company has an amount receivable of R5 927 027 664 (2017: R6 137 046 218) from BMW Financial Servicesin respect of auto loans legally acquired. Refer to note 5.

BMW Financial Services is the appointed service provider. The servicing fee for the year amounted to R30 392 105(2017: R25 448 327). Refer to note 16.

19.2 Key management personnel

The company has no employees, and therefore no key management personnel compensation was paid during theyear.




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19. Related parties (continued)

19.3 Directors’ fees

All of the directors of the company are employed by external companies, and are remunerated by their respectiveemployer on a separate basis. There were no remuneration or benefits paid directly to the directors of the company,by the company or any other company within the same group of companies, as defined by the Companies Actduring the current or prior years. Four directors are employees of, and remunerated by, TMF Corporate Services(South Africa) Proprietary Limited (third party service provider) on a separate basis. BMW Financial Services (SouthAfrica) Proprietary Limited representative director is not remunerated for his services by the company.

Directors’ fees of R175 419 (2017: R160 337) were paid to TMF Corporate Services (South Africa) ProprietaryLimited (third party service provider), as employer of the majority of the directors, to provide corporate governanceand other fiduciary services to the company, which are included in other expenses. Refer to note 16.

20. Risk Management

The company has exposure to the following risk from its use of financial instruments:

- Credit risk

- Liquidity risk

- Interest rate risk

20.1 Credit risk

BMW Financial Services legally sold a portion of auto loans to the company. As a result, exposure to credit riskarises if auto loans customers partially fulfil contractual obligations. BMW Financial Services has a credit policy inplace and the exposure to credit risk is monitored on an ongoing basis.

The company is exposed to credit risks, which is managed by BMW Financial Services by authorising credit limitsbased on a client's risk profile and monitoring customer arrears and payment history. Credit risk arises fromexposures to retail customer contracts, including outstanding receivables, cash and cash equivalents, derivativefinancial instruments and deposits with banks and financial institutions.

BMW Financial Services Receivables (Auto Loans)

Retail customers are evaluated by using a credit risk assessment system or scorecard developed by the BMWGroup. Based on the applicant's credit risk standing and affordability profile, the risk of default is assessed and ifacceptable, an appropriate interest rate is charged for the deal.

Changes in the creditworthiness of customers arising during the credit term are covered by risk provisioningprocedures. The credit risk of the individual portfolio is quantified on a monthly basis and, depending on theoutcome, taken into account within the risk provisioning system. Macroeconomic developments are currentlysubject to a higher degree of volatility. If developments are more favourable than assumed in the outlook, creditlosses may be reduced, leading to a positive earnings impact.


Trade receivables are mostly receivables that includes credit risk exposure that relates to the bank. Given thenature of these receivables, management does not expect any counterparty to default on meeting its obligations.




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20. Risk Management (continued)

20.1 Credit risk (continued)


Reputable financial institutions are used for investing and cash handling purposes. The maximum exposure to creditrisk is represented by the carrying amount of each financial asset in the statement of financial position.

Impairment

IFRS 9 outlines a three stage model for impairment, based on changes in credit quality since initial recognition, assummarised below:

Stage 1 - includes financial assets which do not show significant increase in their credit risk since initial recognitionor which have low credit risk at the reporting date. For all assets in Stage 1 a loss allowance equal to 12 monthexpected credit loss ("ECL") is recognized and interest revenue is calculated on the gross carrying amount of theasset (that is, without deduction for credit allowance).

Stage 2 - includes financial assets which show significant increase in their credit risk since initial recognition but donot have objective evidence of impairment (for IFRS 9 purposes objective evidence of impairment is defined as adefault). For all assets in Stage 2 a loss allowance equal to lifetime ECL is recognised, but interest revenue is stillcalculated on the gross carrying amount of the asset.

Stage 3 - includes financial assets that have objective evidence of impairment at the reporting date (for IFRS 9purposes objective evidence of impairment is defined as a default). For all assets in Stage 3 a loss allowance equalto lifetime ECL is recognized and interest revenue is calculated on the net carrying amount (that is, net ofimpairment allowance).

Assessment of significant increase in credit risk (SICR) (stage 2)

Stage 2 is comprised of all performing financial instruments that have experienced a significant increase in creditrisk since initial recognition. At each reporting date the group assesses whether there has been a significantincrease in credit risk for exposures since initial recognition by comparing the probability of default ("PD"), over theremaining expected life, at the reporting date with that on the date of initial recognition. The assessment considersborrower-specific quantitative and qualitative information, and the impact of forward-looking macroeconomic factors.

The assessment is performed monthly and the following factors are considered:

• Established thresholds for SICR are based on a percentage change in lifetime PD relative to initial

recognition.

• A set of portfolio-specific qualitative criteria that are indicative of a significant increase in credit risk are

used to supplement the lifetime PD comparison.

• Instruments that are more than 30 days past due are generally considered to have experienced a

significant increase in credit risk.

Measuring ECL – Explanation of inputs, assumptions and estimation techniques

In the context of IFRS 9, the calculation of either 12-month (or less) or Lifetime ECLs is required, depending on theclassification in the corresponding IFRS 9 stage. A 12-month ECL in this context is the expected credit loss which isdue to defaults occurring within 12 months after the reporting date. Since IFRS 9 requires to calculate the provisionaccording to the maturity of the contract, the ECL has to be also calculated for defaults occurring within a timeperiod less than 12 months. Accordingly, a lifetime ECL is the expected credit losses which are due to defaultsoccurring within the (residual) lifetime of the asset.




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Measuring ECL – Explanation of inputs, assumptions and estimation techniques (continued)

The company addresses the difficulties of the IFRS 9 – impairment requirements with a modular approach forcalculating ECLs. ECL is calculated as the product of the core model components: probability of default ("PD"), lossgiven default ("LGD"), and exposure at default ("EAD").

Credit risk exposure – BMW Financial Services receivables (Auto Loans)

IFRS 9 classes for retail finance book have been developed based on payment behavior and credit worthiness ofcustomers. IFRS 9 class segmentation has been developed using initial rating score, former delay and delinquencyinformation. The IFRS 9 PD model consists of 11 distinct rating classes, including the default class, threedelinquency classes and a former delay class.

The following table provides analysis of the credit quality of the book as at 31 December 2018:




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The following table sets out information about overdue status on BMW Financial Services Receivable

(Auto Loans) prior to 1 January 2018.

2017

Total capitalamount

Capitalarrears

%Number ofaccounts

R'000 R'000 R'000

Current 5,790,078 - - 18,931

Former delay 98,511 - - 401

0 -30 days 141,528 141,528 2.31% 487

31 - 60 days 47,791 47,791 0.78% 151

61 - 90 days 23,159 23,159 0.38% 76

91 - 120 days 7,399 7,399 0.12% 24

121+ days 28,580 28,580 0.47% 84

Total 6,137,046 248,457 4.06% 20,154

Loss allowance

Transfers

At initial recognition, all assets are categorized in Stage 1, For the purpose of subsequent measurement it isnecessary to examine whether the credit quality has deteriorated significantly. In case of a significant increase incredit risk since initial recognition and entity has to transfer the financial instrument or portfolio, provided that acollective measurement is applicable, from Stage 1 to Stage 2. Hence an entity shall determine whether the creditrisk has increased significantly at each reporting date. The original risk of default at initial recognition shall becompared with the risk of default at the reporting date. For the decision about whether the PD has increasedsignificantly since initial recognition, managment is required to compare the lifetime PDs for the residual contractperiod at the current reporting date with the PDs for the same period of the contracts life as estimated at initialrecognition.

Financial instruments that have one or more objective evidences of impairment at the reporting date (credit-impaired assets) shall be transferred to Stage 3 and (as for assets in Stage 2) loss allowances at amounts equal tolifetime ECLs are recognised.

The company applies the Basel default criteria to identify objective evidences of impairment and, therefore, todecide whether a contract is transferred to Stage 3. This means, whenever a contract is defaulted according to thedefault criteria, a contract is transferred to Stage 3.




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The following table shows reconciliation from opening to closing of the loss allowance as per IFRS 9.

2018

Stage 1 Stage 2 Stage 3 Total

R'000 R'000 R'000 R'000

Impairment allowance - opening balance (IAS 39) 171,896

Changes due to IFRS 9 adoption 19,754

Impairment allowance - restated balanceopening balance 35,770 51,206 104,674 191,650

Transfer to other stages (63,616) (70,081) - (133,697)

Additional changes including model parameters andtransfers from other stages 70,974 78,463 61,380 210,817

Write-offs - - (1,141) (1,141)

Impairment allowance 31 December 2018 43,128 59,588 164,913 267,629

Impairment losses (applicable before 1 January 2018)

The movement in the allowance for impairment in respect of BMW Financial Servicesreceivable (Auto Loans) during the year 2017 was as follows:

Specificimpairments

Portfolioimpairments

Totalimpairments

R '000 R '000 R '000

Balance at 1 January 2017 127,227 20,151 147,378

Impairment loss recognised (5,759) 30,277 24,518

Balance at 31 December 2017 121,468 50,428 171,896

Impaired loans

Impaired loans are loans for which the company determines that it is probable that it will be unable to collect allprincipal and interest due according to the contractual terms of the loan.

Loans with renegotiated terms

Loans with renegotiated terms are loans that have been structured due to deterioration in the borrower’s financialposition and where the company made concessions that it would not necessarily consider under normalcircumstances.

Impairment of assets

The company established an allowance for impairment that represents its estimate of incurred losses in respect ofauto loans instalment sales. The main components of this allowance are a specific loss component that relates toindividually significant exposures, and a collective loss component established for companies of similar assets inrespect of losses that have been incurred but not yet identified. The collective loss allowance is determined basedon historical data of payment statistics for similar financial assets.




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Impairment losses (applicable before 1 January 2018) (continued)

Assets in default

The company defines assets in default as assets that are more than one day overdue. The company have legalrecovery policies in place for the repossession of vehicles which are held as collateral for retail financial contracts.Repossessed assets are sold on a public auction to the highest bidder. Proceeds from the sale of the assets areused to offset retail finance balances which are owed by the client. Any remaining balances are recovered from theclient in terms of a legal recovery process.

Collateral

The company employs a range of policies and practices to mitigate credit risk. The company implements guidelineson the acceptability of specific classes of collateral or credit risk mitigation. The principal collateral for retail financecontract is the underlying vehicle so that in the event of non-payment, the company has a secured claim.

The company does not require collateral in respect of trade and other receivables and cash and cash equivalents.

20.2 Liquidity risk

Liquidity risk is the risk that the company will encounter difficulty in meeting its financial liability Obligations.

Liquidity risk is managed as follows:

• The company has a liquidity facility agreement of R248 650 000 in place with Standard Bank of South Africa to

meet fund timing mismatches between the receipt by the Issuer of payments on the participating assets and the

obligations of the Issuer to pay interest accrued to Noteholders in terms of the Priority of Payments from time to

time.

• The cash reserve accumulated from excess spread is available to settle expenses in the event of a cash shortfall.

Maturity analysis of financial liabilities:

The maturity analysis for financial liabilities has been disclosed based on contractual undiscounted cash flows.

CarryingValue

2018:0-12

months 1-2 years 3-5 years Total

R '000 R '000 R '000 R '000 R '000

Trade and other payables (8,056) - - (8,056) (8,056)

Subordinated loans (563,429) (390,061) (824,218) (1,777,708) (1,473,090)

Debt securities (1,855,809) (1,284,578) (2,787,474) (5,927,861) (5,020,278)

(2,427,294) (1,674,639) (3,611,692) (7,713,625) (6,501,424)




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20.2 Liquidity risk (continued)

2017:0-12

months 1-2 years 3-5 years TotalCarrying

Value

R '000 R '000 R '000 R '000 R '000

Trade and other payables (6,268) - - (6,268) (6,268)

Subordinated loans (154,474) (583,224) (1,214,644) (1,952,342) (1,473,186)

Debt securities (429,976) (1,845,793) (4,028,760) (6,304,528) (5,020,593)

(590,718) (2,429,017) (5,243,404) (8,263,138) (6,500,047)

20.3 Interest rate risk

Interest rate risk is caused by different repricing characteristics of assets and liabilities due to changes in interestrates i.e. yield curve risk, basis risk and repricing risk.

Basis risk

Basis risk as part of interest rate risk arises due the fact that most asset cash flows are linked to the Prime ratewhereas funding liabilities are usually linked to the 3-month JIBAR rate. Movements in the Prime and JIBAR rates,although mostly correlated, are not exactly the same which may lead to a widening or reduction in the differencebetween Prime and JIBAR and hence the net margin earned between assets and liabilities. Basis risk is monitoredand measured by regular sensitivity analysis and exposure analysis and may partially be mitigated by basis swapsto adjust for the different reference rates. The market for basis risk swaps in South Africa is very small thereforebasis risk is currently accepted as an inherent risk within the overall portfolio.

Interest rate risk is measured and controlled by a modern Value-at Risk historical simulation, stress tests, sensitivityand various types of exposure analysis.

In order to reduce the above risk, the company entered into Prime-JIBAR swaps.

Prime – JIBAR risk

The Prime-JIBAR rate basis risk is managed on a ratio basis, i.e. ratio of the portion of Prime-linked funding to thetotal Prime-linked asset portfolio. For this purpose, an appropriate amount of JIBAR funding needs to be swappedto Prime and Prime-linked plain vanilla funding should be encouraged. The company has entered into interest rateswaps to manage this risk (swapping Prime to JIBAR and vice versa).

All current securitisation programmes have an embedded Prime-JIBAR swap since it is a Moody’s requirement thatthe SPV may not carry any risk between the JIBAR-linked interest paid to noteholders and the Prime-linked interestearned on assets purchased. All cash and cash equivalents bear interest at a rate linked to JIBAR.




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20.3 Interest rate risk (continued)

Carrying value

2018 R '000

Sensitivity -1% 5,020,278 +1%

Interest expense on debt securities

Impact on profit or loss 50,203 (50,203)

Sensitivity -1% 1,473,090 +1%

Interest expense on subordinated loan


Sensitivity -1% 610,026 +1%


Impact on profit or loss (6,100) 6,100

Sensitivity -1% 5,927,028 +1%

BMW Financial Services receivable


Sensitivity net of the above items: (437) 437

Sensitivity after tax: (315) 315

Carrying value

2017 R '000

Sensitivity -1% 5,020,593 +1%

Interest expense on debt securities


Sensitivity -1% 1,473,186 +1%

Interest expense on subordinated loan


Sensitivity -1% 426,781 +1%



Sensitivity -1% 6,137,046 +1%

BMW Financial Services receivable


Sensitivity net of the above items: (700) 700

Capital disclosures

Capital is not actively managed because of the nature of the legal structure of the company.The company is not subject to any external capital regulatory requirements.




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20.3 Interest rate risk (continued)

Analysis of assets and liabilities




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21. Fair value management

The fair value is calculated by obtaining fair values from quoted market prices or discounted cash flow models. At31 December 2018 the carrying amounts of cash and cash equivalents, trade and other receivables and trade andother payables approximate their fair values due to the short-term maturities of these assets and liabilities.

The carrying amount of BMW Financial Services receivable (Auto Loans) approximate fair value. The majority of theBMW Financial Services contracts are prime linked and changes in the credit risk has been taken into account inthe carrying value through ECL allowance.

The carrying value of debt securities and subordinated loans approximate fair value as these are jibar-linked andthe credit risk of the company has not changed since the issue of financial liabilities.

Change in estimate

In the current year, management changed the estimate of calculating fair value by discounting future cash flows atyear end rates as opposed to expected future curves. This resulted in the carrying amount of the BMW FinancialServices receivable (Auto Loans), debt securities and subordinated loans approximating fair value.

Fair value as at 31 December 2017

The table below sets out the gross value and fair value of those financial assets and liabilities not presented on thestatement of financial position at fair value as at 31 December 2017:

31 December 2017

Carryingvalue Fair value

R' 000 R' 000

BMW Financial Services receivable (Auto Loans)

(including accrued interest) 6,137,046 7,848,522

6,137,046 7,848,522

Debt Securities

(including accrued interest) 5,020,593 4,137,157

Subordinated loans 1,473,186 1,282,406

6,493,779 5,419,563

Fair Value estimation

The estimated fair value of BMW Financial Service receivable is based on expected future cash flows discounted atcurrent market rates. The fair value estimates will depend on customer prepayments, credit losses and expectedfuture interest rates.

The fair value of debt securities is based on current market prices where available.




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21. Fair value management (continued)

Fair Value Hierarchy

At the reporting date, the carrying amounts of financial instruments held at fair value for which fair values weredetermined directly, in full or in part, by reference to published price quotations and determined using valuationtechniques are as follows:

31 December 2018

Level 1 Level 2 Level 3 Total

R' 000 R' 000 R' 000 R' 000

Measured at fair value

Derivatives - 49,878 - 49,878

- 49,878 - 49,878

31 December 2017

Level 1 Level 2 Level 3 Total

R' 000 R' 000 R' 000 R' 000

Not measured at fair value

Financial assets - 7,848,522 - 7,848,522

Financial liabilities - (6,678,722) - (6,678,722)

Measured at fair value

Derivatives - 16,652 - 16,652

- 16,652 - 16,652

The fair values of the financial assets included in the level 2 category above has been determined in accordancewith generally accepted pricing models based on a discounted cash flow analysis, with the most significant inputsbeing the interest rate that reflects the credit risk of counterparties.

22. Going concern

The company recorded a profit of R63 837 (2017: R50 103) for the year ended 31 December 2018. As at31 December 2018 the company had a net asset position of R113 377 (2017: R113 762).

As a result of the above, the directors believe that the company is liquid and solvent and would be able to settle it'scurrent liabilties as they become due. Hence, the company has adequate resources to continue as a going concernfor the forseeable future. The company therefore continues to adopt the going concern basis in preparing thefinancial statements.

23. Subsequent events

There have been no material events between 31 December 2018 and the date of this report.




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SuperDrive Investments (RF) Limited

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